THE FULL FINANCIAL REPORT IS BELOW:

DONEGAL CREAMERIES PLC

PRELIMINARY ANNOUNCEMENT OF RESULTS

FOR THE YEAR ENDED 31 DECEMBER 2011

12 April 2012

SIGNIFICANT PROGRESS IN THE GROUP’S STRATEGIC PLANS IN A YEAR OF SIGNIFICANT CHANGE FOR DONEGAL CREAMERIES PLC

SUMMARY

• Planned transformational change for the Group with the sale of its liquid and trade milk and Agri-stores businesses
• Sale of liquid and trade milk provides an exit from a low margin cyclical business, as part of sector consolidation to achieve the necessary scale efficiencies and ability to withstand customer pricing pressures so as to generate sustainable financial returns
• Connacht Gold Co-Operative Society Limited will now be a strong number two player in the Republic of Ireland market and will have the scale and ability to better provide our former milk producers with access to quota and assured processing capacity for their milk
• The sale of our Agri-stores business enables the Donegal Creameries Group to focus on the opportunities in its Produce, Valued Added Dairy, Agri-inputs divisions and its key associate investments
• This is further evident in the acquisitions completed during the year in the key strategic areas of valued added dairy and seed potatoes:
  • On 6 January 2011, the Group acquired a controlling interest in Biogreen Limited, a boutique yogurt business based in London and
  • On 11 November 2011, the Group acquired 100% of the AJ Allan Seed Potato Group, the Scottish based grower and marketer of seed potatoes
• Group turnover from continuing operations increased by 13.6% from €61.3m to €69.6m reflecting increases across all continuing operations – Valued Added Dairy up 1.9%, Agri-inputs up 10.3% and Produce up 21.9%
• Operating profit from continuing operations, before net finance costs, changes in fair value of investment properties, contribution from Associates and tax, declined from €3.96m to €3.63m, a reduction of 8.1%.  Operating profits in Agri-inputs increased by 23.2% from €1.0m to €1.2m and in Produce by 32.8% from €2.6m to €3.4m. In contrast our Value Added Dairy business recorded an operating loss of €1.4m in comparison with an operating profit of €0.13m in 2010 as a result of further investment in management and marketing to drive future growth
• The Group’s share of associate investment results, in the main Monaghan Middlebrook Mushrooms, declined by €2.1m to €1.66m during the year. This was attributable to a combination of a €1.2m reduction in operating performance (of which €1.0m occurred in the first half of 2011) due to a challenging UK mushroom market and a further reduction of €0.9m in the carrying value of associate properties. In January 2012, Monaghan Middlebrook Mushrooms acquired a majority shareholding in Dutch company Walkro International, one of the largest producers of mushroom substrate in Western Europe.
• Further downward revaluations of €6.7m in Group, and €0.9m in associate, property holdings. The Board has now valued the majority of development land within the Group’s portfolio, as well as its share of associates’ development land, at agricultural values and therefore would not expect any further significant reductions in value going forward
• Net finance expenses rose from €0.37m in 2010 to €1.7m in 2011 largely due to a €0.2m gain from sterling euro exchange rate movements versus a €0.8m gain in 2010 and increased borrowing costs of €0.5m
• Net debt increased from €23.2m at 31 December 2010 to €32.9m during the year with acquisition spend of €4.5m and capital expenditure of €2.4m during the year. However, following completion of the disposals to Connacht Gold Co-Operative Society Limited, borrowings have been significantly reduced and at 11 April 2012 net debt was just below €20m and is expected to further reduce at the interim stage
• Dividend per share maintained at 16c

FINANCIAL HIGHLIGHTS

* Adjusted operating profit before the impact of change in fair value of investment properties and exceptional items

** Adjusted earnings before the impact of change in fair value of investment properties in group & associates, the related deferred tax and CGT rate change in 2011

***Net assets are total equity attributable to equity holders of the Company

**** As re-presented to reflect the effect of discontinued operations

For reference:

Chairman’s statement

It is appropriate that I begin my statement for 2011 with a summary of the most significant development in the Group since our formation.  We have for a long time recognised the uniqueness of the Group with its traditional roots in the dairy milk business along with other diversified activities. As you know I have previously reported that the Board had adopted a proactive stance in finding a long term solution for our milk producers as well as focusing on key strategic areas of seed potato, value added dairy and associate investments. The issues faced by our milk producers, included the short term issue of quota management as well as long term access to processing capacity post quota in 2015 in the context of the national commitment to Food Harvest 2020. The Board had evaluated various strategies for investment in processing capacity but the capital investment required could not be justified on the basis of the expected financial returns and hence would not have been the correct decision for all stakeholders. In the wider perspective it would also run contrary to the national need for consolidation to build larger scales of operation. As such, it was most important that we delivered an alternative long term solution for our milk business for the benefit of all our stakeholders.

I am confident that the disposal of our liquid and trade milk businesses and our Agri-stores business to Connacht Gold Co-Operative Society Limited provides such a solution. Our milk producers will now have access to quota and will be part of a larger Dairy business which has excellent capacity to process their milk. I believe the milk and Agri-stores employees will benefit from improved career development and employment prospects as part of the larger Connacht Gold Co-Operative Society operations.  The combined liquid milk businesses of Connacht Gold Co-Operative Society and Donegal represents a strong number two supplier in the Republic of Ireland market and the combined stores business will be the leading Agri-stores business in the North West of Ireland.  In the medium to long term I believe that Connacht Gold Co-Operative Society will be a better owner of our Milk business given the need for scale in the sector.  Furthermore, unlike Donegal Connacht Gold Co-Operative Society has the ability to utilise the total milk supply pool through its use as an input into other dairy products thereby avoiding the cyclical impact of trading excess milk to other third party processors. Finally, I also believe that this is a good deal for our shareholders. The Board is satisfied with the financial component of the transaction and views the disposal as a major strategic step towards the development of a less cyclical, faster growing and more profitable Group.

The disposal of our milk and stores businesses in 2011 was balanced by two important acquisitions. In January 2011, the Group acquired a controlling interest in Biogreen Limited, a niche yogurt business based in London and in the final quarter, the Group acquired 100% of the AJ Allan seed potato business, the Scottish based grower and marketer of seed potatoes which has significantly improved the Group’s overall seed potato business. The Board sees 2012 as a year of consolidating the strategic changes made to the Group during 2011 and does not expect any major activity with regard to either acquisitions or disposals.

Turnover from continuing operations increased by 13.6% to €69.6m. This was driven mainly by growth of 21.9% in the produce division. As previously outlined to shareholders, the Board had identified produce and in particular its seed potato business as a key strategic growth area and is very pleased with the continued progress experienced in this business during 2011. The value added dairy business had a challenging year with modest growth in sales of 1.9% and sales in our Agri-inputs business grew by 10.3% to €27.7m, driven mainly by higher commodity pricing.

The Group made an adjusted operating profit from continuing operations of €3.6m, down from €4.0m in 2010, primarily due to losses in our value added dairy business. We have, within the last two years in value added dairy, acquired a number of niche businesses in which we are investing for future growth. The financial performance from all other Group activities was satisfactory.

In terms of our property portfolio we have returned the majority of our development land to agricultural land valuations resulting in further downward revaluations of €6.7m in Group, and €0.9m in associate, property holdings. Shareholders will be very aware of the current state of the Irish property market and also our requirement to have all investment properties independently valued bi-annually. As a result of the action taken, the Group does not expect any further significant reductions in value going forward.

The Group has delivered adjusted earnings per share from continuing operations of 48.8 cent, broadly in line with that advised per our interim results announcement of 1 September 2011.

Dividend

The Directors are recommending a final dividend of 9 cent per share. If approved, this dividend will be paid on 24 August 2012 to those shareholders on the register on 3 August 2012. This will bring the total dividend per share to 16 cent, maintaining the 2010 dividend payment.

AGM

The Group’s AGM will take place on Wednesday 4 July 2012 at 11.30am at the Silver Tassie Hotel, Letterkenny, Co. Donegal.

In conclusion I would like to recognise the considerable efforts and achievements of my Board colleagues during the year and in particular their success in implementing significant planned strategic change to the Group’s operations.  I would also like to thank our former milk producers and employees for the significant contributions they have made to our Milk and Agri-stores businesses over many years and to wish them and Connacht Gold Co-Operative Society continued success.

Geoffrey Vance

Chairman

Managing Director’s Review 

Summary operations review

Produce Division

A very satisfactory performance from our Produce Division saw turnover increase by 21.9% to €32.3m delivering a segmental result of €3.4m, an increase of 32.8% on 2010. All key markets for our seed potato business performed well.

On 11 November 2011, the Group acquired 100% of the AJ Allan seed potato business, the Scottish based grower and marketer of seed potatoes.  The acquisition, effected through our Irish Potato Marketing (IPM) business, has significantly improved the Group’s overall seed potato business. AJ Allan is based in Brechin, Scotland, has significant storage and grading facilities and grows approximately 12,000 tons per annum of certified seed potatoes.  Furthermore, the acquisition will strengthen IPM’s production base in Scotland by adding a new dimension of direct growing to augment IPM’s current contract growing arrangements. IPM will use the AJ Allan platform to further grow its sales of proprietary seed potato varieties into the 35 global markets in which it currently operates.

During the year we received our first royalty payments from Australia. We have further developed our market strategies in a number of new potential markets and we remain confident of developing successful markets in South America, Turkey, South Africa and Asia and expect further progress on this front during the coming year.  This will create a solid commercial platform for the global business. We have a number of new seed varieties in the early stages of trialling and these are showing considerable promise.  The Board remains confident that developing our proprietary certified seed potato business will be key to driving overall Group profitability going forward.

Dairy Division

Following the disposal of our liquid and trade milk businesses, the Group has retained its value added dairy business which includes The Different Dairy Company based in Killygordon, County Donegal and our two UK businesses, Chef in a Box and Biogreen. The Different Dairy Company consists of Rumblers, a business which makes a food on the go offering with listings in the UK in over 3,500 outlets and Organic For Us, an organic yoghurt business focused on the Irish Retail market which was launched in 2010. Chef in a Box provides meal solutions to the hotel and travel sectors.  During 2011, it relocated to a larger and more modern facility near Slough. Biogreen is a boutique yogurt business with a range of premium and ethnic products. In 2011, the segmental result for the valued added dairy business was a loss of €1.4m (2010: profit of €0.13m).  This reflects the challenging consumer environment, particularly in Ireland, and the fact that the majority of these niche dairy businesses are in the early stages of development with considerable investment in management and marketing during the year, necessary to drive future growth and profitability.

Agri-inputs

Following the disposal of our Agri-stores business, Smyths Daleside Animal feeds will be the main Agri-inputs business going forward.  Turnover during the year was €27.7m, an increase of 10.3%, and the segmental result increased by 23.3% to €1.2m. Smyths is a well invested business with good facilities, systems, an experienced workforce and a strong presence in the North West of Ireland market with a loyal and local customer base.  The business is well positioned for future growth and cash generation.

Property and investments

There were no property acquisitions or disposals during the year. The Group have reduced further the carrying value of its property portfolio, including property in associates, in line with the depressed property market in Ireland. The majority of development land assets are now carried at agricultural values and as such we would not expect any further significant reductions in value going forward.  The total cumulative downward revaluation in the five years to 2011 was €11.8m.

Associates

The Group’s share of associate investment results, in the main Monaghan Middlebrook Mushrooms, declined by €2.1m to €1.66m during the year. This was attributable to a combination of a €1.2m reduction in operating performance, €1m of which occurred in the first half of 2011 due to a challenging UK mushroom market and a further reduction of €0.9m in the carrying value of associate properties. In January 2012, Monaghan Middlebrook Mushrooms acquired a majority shareholding in Dutch company Walkro International, one of the largest producers of mushroom substrate in Western Europe.

Finance

The Group currently has committed bank facilities of €27m. During the year the Group spent €4.5m on acquisitions and €2.4m on capital expenditure. Furthermore operating cash flow for the year was negative, which included losses incurred in our Milk businesses.  However, following completion of the disposals to Connacht Gold Co-Operative Society, borrowings have been significantly reduced and at 11 April 2012 net debt was just below €20m and is expected to further reduce at the interim stage. The disposals to Connacht Gold Co-Operative Society provide for further contingent earn-out payments of up to €7.4m dependent on the operating and financial performance of the liquid and trade milk businesses during the year to 31 December 2012.

Outlook

Further to the Chairman’s statement, 2012 will be a year to consolidate the strategic changes made to the Group during 2011. Our key strategic objectives of the past number of years have not changed and following the disposals of our milk and Agri-stores businesses we will be in a position to increasingly focus our financial and management resources on the strategic areas of seed potato, value added dairy and associate investments, so as to deliver shareholder value.

I would like to thank my colleagues for their considerable contribution and commitment in delivering the transformational changes to the Group during 2011. Furthermore, I would like to specifically recognise our Board and its leadership, who very objectively made the decision to significantly change the Group for the benefit of all our stakeholders.

Ian Ireland

Managing Director

Donegal Creameries plc

Condensed consolidated statement of comprehensive income

    for the year ended 31 December 2011      

* As restated to reflect the effect of discontinued operations

Donegal Creameries plc

Condensed consolidated statement of comprehensive income (continued)

for the year ended 31 December 2011      

                                                         Restated

Donegal Creameries plc

Condensed consolidated statement of financial position

As at 31 December 2011         

Donegal Creameries plc

Condensed consolidated statement of changes in equity

for the year ended 31 December 2011                                                      

Donegal Creameries plc

Condensed consolidated statement of changes in equity (continued)

for the year ended 31 December 2011                                                      

Donegal Creameries plc

Condensed consolidated statement of changes in equity

for the year ended 31 December 2010

Donegal Creameries plc

Condensed consolidated statement of changes in equity (continued)

for the year ended 31 December 2010

Donegal Creameries plc

Condensed consolidated statement of cash flows                      

for the year ended 31 December 2011                                            

Donegal Creameries plc

Condensed consolidated statement of cash flows (continued)

for the year ended 31 December 2011                                            

Donegal Creameries plc

Notes to the preliminary financial statements

for the year ended 31 December 2011

(1)  Reporting entity

Donegal Creameries plc (the “Company”) is a Company incorporated and tax resident in the Republic of Ireland. The consolidated financial statements of the Company as at and for the year ended 31 December 2011 consolidate the financial statements of the Company and its subsidiaries (together referred to as the “Group”) and include the Group’s interest in associates using the equity method of accounting.  The Company financial statements deal with the Company as a single entity.  The Group is primarily involved in the management and distribution of milk and agricultural inputs (the liquid and trade milk and agri-stores business were disposed on 13 January 2012), the development and sale of produce and the development and sale of property.

(2)  Statement of compliance

The consolidated financial statements for the year ended 31 December 2011 have been prepared in accordance with the International Financial Reporting Standards and Interpretations (together IFRS) issued by the International Accounting Standards Board (IASB) and adopted by the European Union (‘EU IFRS’).  The Company financial statements have been prepared in accordance with EU IFRS, as applied in accordance with the Companies Acts 1963 to 2009, which permits a Company that publishes its consolidated and Company financial statements together to take advantage of the exemption in Section 148(8) of the Companies Act, 1963 from presenting to its members its Company income statement and related notes that form part of the approved Company financial statements.

The Standards and Interpretations applied were those that were effective for accounting periods ending on or before 31 December 2011.

(3)         Accounting policies

The accounting policies and methods of computation adopted in the preparation of the Group Condensed Financial Statements are consistent, except as noted below, with those applied in the Annual Report for the financial year ended 31 December 2011 and are described in those financial statements.

Except as described below, the Group did not adopt any new International Financial Reporting Standards (IFRS) or interpretations in the period that have had a material impact on the Group Condensed Interim Financial Statements for the half year.

(a)               Change in accounting policy

As of 1 January 2011, the Group has changed its accounting policies in the following areas which do not have a material effect on the results or financial position of the Group:

• IFRIC 19, “ Extinguishing Financial Liabilities with Equity Instruments”;
• Amendments to IFRIC 14, “ Prepayments of a Minimum Funding Requirement”;
• Amendments to IAS 32,  “Financial instruments: Presentation on classification of rights issues”
• Amendments to IAS 24, “Related Party Disclosures”; and
• The IASB’s third annual improvement project, “Improvements to IFAS (Issued 2010).

(4) Estimates

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. Except as described below, in preparing these condensed consolidated financial statements, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2011.

Donegal Creameries plc

Notes to the preliminary financial statements (continued)

for the year ended 31 December 2011

(5)   Segment Information

IFRS 8 Operating Segments requires operating segments to be identified on the basis of internal reports that are regularly reviewed by the chief operating decision maker (CODM) in order to allocate resources to the segments and to assess their performance.

The Group comprises the following reportable business segments:

• Dairy: The assembly, processing and distribution of liquid milk and the production, distribution and marketing of added value dairy products including the Rumblers brand.
• Agri-inputs: The manufacture, sale and distribution of farm inputs.
• Produce: The growing, sales and distribution of seed potatoes and organic produce.
• Property and investments: Includes the rental, development and sale of property assets.
• Other operations: Includes the stevedoring business and corporate activity.

Information regarding the results of each reportable segment is included below. Performance is measured based on segment operating profit/(loss) as included in the internal management reports that are reviewed by the Group’s CODM, being the Board. Segment operating profit is used to measure performance; as such information is the most relevant in evaluating the results of the Group’s segments. Segment results, assets and liabilities include all items directly attributable to a segment. Segment capital expenditure is the total amount incurred during the period to acquire segment assets that are expected to be used for more than one accounting period.

Donegal Creameries plc

Notes to the preliminary financial statements (continued)

for the year ended 31 December 2011

(5) Segment reporting (continued)

Business segments (continued)

Donegal Creameries plc

Notes to the preliminary financial statements (continued)

for the year ended 31 December 2011

(5)   Segment Information (continued)

Business segments (continued)

Donegal Creameries plc

Notes to the preliminary financial statements (continued)

for the year ended 31 December 2011

(5)   Segment Information (continued)

Business segments (continued)

Entity-wide disclosures

Section 1: Information about products and services

The Group’s revenue from external customers in respect of its principal products and services is analysed in the disclosures above.

Section 2: Information about geographical areas and customers

The Group has a presence in several countries worldwide. The revenues from external customers and non-current assets (as defined in IFRS 8) attributable to the country of domicile of all foreign operations are noted above.

Seasonality

The Group’s produce and agri-input divisions are second half weighted. This weighting is primarily driven by weather and global buying patterns.